WBK (Westpac Banking
Corporation): "Still in a good shape!"
By:
Wenting (Mavis) Peng,
student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Westpac Banking Corporation (New York: WBK) one of the four
major banks in Australia and one of the largest banks in New Zealand. It offers
diversified banking and financial services.
• WBK’s
capital still remains in a sector leading position. CET1 ratio is 10.2%.
• WBK is seeing a
solid asset quality, suggesting that it has good potential in both short-term
and long-term.
•
Broad portfolio of services and products and strong parent backing will help
Westpac maintain its strong market position for the long-term.
•
More opportunities in Australian market. (Cards & payments, insurance
industry, and mobile banking)
Key Points: In
the first quarter of year 2016, Westpac Banking Corporation has CET1 ratio of 10.2%, which increased 70 bps compared
to last September. 3.5 billion Australian dollars entitlement offer were signed
in 2015. Looking forward to 2016, Westpac is expected to remain the sector
leading position through its organic earnings. Moreover, the company puts a lot
of efforts on lowering the cost. The recent commitment to delivering cost
growth below 3% will also benefit the company.
The impaired corporate loans in Westpac decreased
by $68 million in the first quarter of year 2016 and at the same time, the
actual losses further declined by $41 million from last quarter. Additionally, the
impaired residential mortgages also decreased by $15 million while 3 month
actual losses were $3 million lower than the previous quarter.
Westpac Banking Corporation has a very unique
and diversified product and business mix and a high quality business model,
helping WBK meet broader customer demands and requirements. Westpac offers a
wide range of financial products and service to not only individual clients
but also business and corporate customers. Westpac already launched a plan to
develop its specialty in Internet banking, mobile banking, phone banking, and
merging lending. In addition, Westpac serves over 12 million customers through
operating through its broad network of branches in the major financial centers
such as London, Hong Kong, New York and Singapore. In a word, the diversified
global specialized platform with a strong parent backing will continue to contribute to WBK’s reputation
as the industry leading company with strong market position.
Westpac announced that it would continue to expend geographically and
exploit its exposures to wealth management and insurance services.
Does the company
have great opportunity?
The potential cards & payment market, growing Australian insurance
industry, and the mobile banking will provide significant opportunity for
Westpac. Firstly, the growing cards and payments market in Australia is more
likely to drive the demand for Westpac Banking offerings. According to recently
research, the Australian market for cards and payments is estimated to grow at
a CAGR of 3.2% and expected to reach 115.7 million in 2017.
Westpac also stands
to benefit from the growing Australian insurance industry that supported by
rise in motor vehicles sales, growth of e-commerce to support non-life segment
as well as the growth in aging population in Australia. For example, the
written premium of Australian insurance industry is expected to increased at
4.2% CAGR, reaching $107.9 billion in 2018.
How’s the Stock Performance Recently?
We bought this stock at a price of $22.93; the current price of
Westpac Banking Corporation is $24.36, up 6%. The stock is nonetheless on the
bargain table with a relatively low price to book value of 2 times. Moreover, WBK also paid
$1.37 dividend, giving you an impressive 5.69% yield.
Source:
FactSet
My
Takeaway
Westpac
Banking Corporation has very strong market position and potential to grow in
the long-term perspective. The company’s management are also confident about
WBK ‘s stock performance in the following year because the strategic focus on
mobile banking will provide the banking experience easier and much quicker for
the customers, in turn attracting new customer base and its top-line
performance. I firmly believe WBK will maintain its strong profit performance
by expanding and diversifying its platform, products, and network expansions.
All these will drive a high price for WBK sooner.
